Dollars start running out for Egypt's currency bureaus

February 17, 2013|Nadia El-Gowely and Ehab Farouk | Reuters

(Asmaa Waguih Reuters, )

CAIRO (Reuters) - Egypt's currency bureaus are being overwhelmed by demand for dollars amid a supply shortage fuelled by political crisis, the head of the foreign exchange department at the Chambers of Commerce said.

Mohamed el-Abyad said foreign exchange offices can only supply 20 percent of the dollars for which they receive orders.

"With the dollar shortage there is a semi-halting of our operations," he told Reuters in an interview.

More than two years of political instability following the overthrow of President Hosni Mubarak in 2011 has triggered a flight into dollars and disrupted foreign investments.

That has caused a devaluation of the local pound, which has dropped over 8 percent against the dollar in the past two months, and drained the country's foreign reserves.

The currency crisis has also driven some dealers into the streets in search of people with dollars to sell, spawning a new black market.

In an attempt to control the rate of the pound's decline, Egypt's central bank introduced a regular dollar auctions in December. Since then it has cut the amount of dollars it offers, to $40 million in its latest auction last week from an initial $75 million.

Abyad said the central bank's decrease in the amount of dollars offered is "due to the decline in their supply of dollars and not because the market does not need it."

Egypt's foreign reserves fell to $13.6 billion at the end of January - below the key $15 billion level needed to cover three months of imports. They stood at $36 billion on the eve of the uprising against Mubarak.

"The outflow of foreign investment and the flight of capital in fear of the situation in the country is what created the dollar crisis," Abyad added.

Egypt is negotiating a $4.8 billion International Monetary Fund loan but talks have stalled pending a revision of the country's economic reform program.

Prime Minister Hisham Kandil said last week the government had finished revising its program, and hoped the IMF team would return this month to resume loan talks.

The chief IMF spokesman said on Thursday he was unaware of the Fund receiving the revised program.

"(...There are no) clear or specific outlines of where we are going with the Egyptian economy," Abyad said.

(Reporting by Nadia El-Gowly and Ehab Farouk; Editing by John Stonestreet)